Japan Tries Hard to Keep People Employed, Ease the Pain for Jobless

ByWilliam Chapman

May 10, 1981

For 22 years, Tokujiro Kitagawa cut metal for the freighters built at the Sanoyasu docks here and looked forward to working at his trade under the usual company agreement that kept men employed until the age of 58.

But in March 1979, when ship sales were falling fast, his boss came around and bluntly informed him he was off the payroll. He could, the boss said, take a welding job at another company plant some distance away.

Kitagawa was hurt and is still bitter.

"It was the way they did it," he recalled recently. "There was no dialogue. He just came up with a piece of paper that said, 'Kitagawa -- welding.'"

Kitagawa turned the offer down and left after shouting out his rancor at a company director. He lived for 11 months on unemployment insurance and worked six more months at a part-time job until fortune smiled. He got a new metal-cutting job near home which, except for smaller bonuses, pays almost as much as Sanoyasu did.

His case underscores two important points about unemployment in Japan's prosperous economy. First, despite the fabled lifetime employment system so widely admired, workers do lose jobs when hard times come. It can be personally humiliating and financially difficult.

But, second, the system worked earnestly to ease the pain. Kitagawa was offered other choices by the job market; the government helped through the hard time, and he emerged from his middle-aged trauma a productive wage-earner with family intact.

By most conventional measurements, Japan's way of dealing with unemployment is a huge success, justifiably envied around the world. The statistics of that success are stunning. Japan's unemployment rate peaked at just 2.2 percent in 1978 under pressures generated by the first oil shock, while the West was accepting rates four times higher and worse. Unemployment in Japan, acknowledges a U.S. Labor Department study, "has remained lower and more stable than in the other major industrial nations."

The bright record generates the impression that Japan has created something new under the sun -- a postindustrial perpetual-employment machine that keeps workers employed through good times and bad. It is partly an exaggeration. For one thing, the Japanese system has never been tested severely over the long haul. High growth rates are responsible for the success in large part. Moreover, the Japanese system masks a considerable degree of "hidden unemployment" that is most troublesome for middle-aged and older workers, who are often the first to be laid off.

But those caveats aside, the point remains that when Japan's system was tested, it reacted differently from those in the West. When recessions come, a unique blend of corporate patience, labor cooperation and government support comes into play. This mixture cushions the shock, minimizes layoffs and -- most important, experts believe -- slows down the drift to joblessness that is often a panicky process of shredding payrolls in the West.

Moreover, Japan has been both skillful and fortunate in dealing with "structural depressions" in dying industries. Outdated industries are allowed to perish while new, more competitive ones take their place. The government guides that process and helps workers cross the gap to new jobs.

The mainspring of this success is not, as Japanese sometimes brag, a lifetime employment system. Nothing like that really exists. Companies generally agree to keep workers on the payroll until they are between 55 and 60. That may have once been the end of useful work, but it no longer is. In fact, 86 percent of Japanese men between 55 and 64 still work, which means that many found other jobs when their "lifetime" company jobs ended.

Moreover, lifetime employment applies mainly to Japan's larger companies and apparently only to a minority of the total jobs here. No precise statistics are available, but Minoru Ito, researcher at the National Institute of Employment and Vocational Research, estimates that only about a third of all Japanese workers are covered by lifetime employment promises.

But within the accepted age range, Japanese companies make extraordinary efforts to avoid firing workers. They shift workers to other jobs in healthy factories, loan them to other companies temporarily, cut working hours to let all share some work, stop recruiting new workers and urge older ones to "voluntarily" retire early with fattened retirement checks.

Estimates show that hundreds of thousands of unneeded workers were kept on company payrolls while Japan sweated out the oil-shock recession. Many were assigned to make-work jobs like clipping lawns and trash collection. Nippon Steel assigned several hundred steelworkers to a fish hatchery. Companies like Kawasaki Steel simply "loaned" skilled employes to booming auto plants like Isuzu Motors. Hours were cut from 8 to 6 or 4 a day to spread out the payroll.

The effect was to avoid Western-style massive layoffs and trim the work force slowly by attrition. Haruo Shimada, associate professor of economics at Keio University, examined what happened in Japan and four Western countries during the recession induced by oil price increases in the mid-1970s. He found Japanese companies much slower in reducing the number of workers, although quicker to reduce individual employes' working hours.

This corporate solicitude for unnecessary workers is often described as a legacy of Japan's feudal era, comparable to the lord's obligations to his samurai warriors. Most research these days, however, describes it as a relatively modern invention that sprung naturally from industry's need to attract, train and retain skilled labor. Still, the strong moral obligation of the Japanese employer -- and perhaps his wish to avoid the shame of mass firings -- is unusual for the industrial world.

Modern research also credits labor unions with exerting considerable pressure to enforce that obligation, acting as a kind of policeman to see that often-unwritten agreements are kept. Japanese unions are often considered docile and management-tamed, but many researchers now think they play an important role in forcing management to trim back slowly

Unemployment insurance and special government subsidies help significantly to ease the pain for those actually laid off. Kitagawa was being paid 170,000 yen a month when the axe fell at Sanoyasu docks and for 11 months he collected 130,000 yen a month from the insurance fund. The support is extended for longer periods for older workers.

Still, the process is not painless. Workers often describe the psychological burden of being laid off, even with sizable compensation, or being assigned insignificant work. They call it being "window-sided" because they are shunted to desks near windows, far from the center of the room where important work is being done.

Moreover, many "voluntary" early retirements are not so voluntary. In many cases, the worker leaves unhappily even though his retirement benefit has been increased considerably. In one big steel mill, older workers who refused to go along with a company payroll-slimming plan were hounded out by peer pressure -- they were shouted at by co-workers during lunch.

The notion that a benevolent management take care of workers through thick and thin is disputed by some labor leaders in the hard-hit shipbuilding industry.

Hideo Ishikawa, secretary of a shipbuilding-machinery union, claims the companies' initial reaction to the sharp recession was to start firing all workers over the age of 50. There is no seniority system to protect veteran employes who are the most highly paid so the old went first, he said. It was a breakdown of the lifetime employment promises.

"What we cannot stand is that in a depression they kick out the older people and in good times hire the younger ones," declares Ataru Shoji, Employment Bureau director of the General Council of Trade Unions.

Moreover, with the shipbuilding industry scaling down employment permanently, thousands of those laid off never returned. Between 1974 and 1979, total shipbuilding employment declined by 111,000 workers.

Japanese statistical methods tend to mask a significant amount of what would be called unemployment in the West. A person is not counted as unemployed if he has worked at least one hour during the week surveyed Labor contends this minimizes the official unemployment count because many counted as employed and simply part-time or temporary workers eking out a living and searching for full-time jobs. One study estimates the Japanese official unemployment rate would be 3 percent, not 2 percent, if U.S. methods of counting were used.

This undercount has become deeply embedded in the Japanese system as more and more companies try to avoid the high costs of supposed life-time employment by hiring more part-time workers or contracting out jobs to temporary employes. The percentage of part-time workers in all Japanes industries doubled between 1975 and 1979. The actual number of full-time workers in Japan actually declined by about 400,000 during the 1970s.